The link between resources and type of diversification: Theory and evidence

The link between resources and type of diversification: Theory and evidence
Chatterjee, Sayan; Wernerfelt, Birger
1991-01-01 00:00:00
In this paper we theoretically and empirically investigate the idea that firms diversify in part to utilize productive resources which are surplus to current operations. Knowledge of these resources allows us to make predictions about the direction of a firm's expansion. In particular, we suggest that excess physical resources, most knowledge‐based resources, and external financial resources are associated with more related diversification, while internal financial resources are associated with more unrelated diversification.
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The link between resources and type of diversification: Theory and evidence

Abstract

In this paper we theoretically and empirically investigate the idea that firms diversify in part to utilize productive resources which are surplus to current operations. Knowledge of these resources allows us to make predictions about the direction of a firm's expansion. In particular, we suggest that excess physical resources, most knowledge‐based resources, and external financial resources are associated with more related diversification, while internal financial resources are associated with more unrelated diversification.